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Operator: Ladies and gentlemen, good day, and welcome to the Q4 and Full-Year FY2024 Earnings Conference Call of Dr. Reddy’s Laboratories Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, Ma’am.

Richa Periwal: Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy’s earnings conference call for the quarter and full-year ended, March 31, 2024. Earlier during the day, we have released our results and the same was also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have the leadership of Dr. Reddy’s comprising Mr. GV Prasad, our Co-Chairman and Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO and the entire Investor Relations team.

Please note that today’s call is a copyrighted material of Dr. Reddy’s, and cannot be re-broadcasted or attributed in press or media outlets without the Company’s expressed written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today’s press release also pertains to this conference call. Now, I hand over the call to Mr. GV Prasad. Over to you, sir.

GV Prasad: Thank you, Richa. Good morning and good evening to all the participants here. Welcome to the annual earnings call of Dr. Reddy’s. I am delighted to be here today along with the members of the management team and the IR team. As many of you know, I joined the earnings call each year at the end of the financial year. FY2024 marks our 40th year of serving patients with the legacy of innovation, affordability and sustainability. Guided by our purpose of accelerating access to affordable and innovative medicines for our patients, in the last four decades, we have moved from our beginning as an API business to generic and OTC medicines, biosimilars, drug discovery and services. As we bring to life our credo of ‘Good Health Can’t Wait’, we have accelerated our journey through licensing and collaboration in the areas of novel medicines and consumer health.

We delivered strong financial results in FY2024. Our growth and profitability in this year have been driven by our performance in the U.S. We also made significant progress on future growth drivers through licensing, collaboration and pipeline building. Our focus in 2025 will be to further strengthen our core businesses through superior execution as we invest and build the future growth drivers. I am grateful to our people, the healthcare community, partners and stakeholders for the trust [indiscernible] us. We are committed to increasing the number of patients we serve around the world through our exciting pipeline of products and services. As we do this, we remain committed to the elements of sustainability, preserving the environment, positive social impact, and good governance.

With this, I’d like to hand over the call to Parag for taking you through the financial performance of the company.

Parag Agarwal: Thank you, Prasad. Greetings to everyone and I hope you are doing well. I’m pleased to take you through our financial performance for quarter four as well as for the full-year of fiscal 2024. As indicated earlier by Prasad, FY2024, has been yet another year of outstanding financial performance with all-time high revenues of over US$3.3 billion and highest ever profits. This fiscal, we recorded a double-digit growth in revenue, EBITDA as well as PAT. For this section, all amounts have been translated into U.S. dollar at a convenience translation rate of INR83.34, which is the rate as of March 31, 2024. Consolidated revenues for the fourth quarter stood at INR7,083 crores, which is US$850 million and grew by 12% on year-on-year basis with a sequential decline of 2%.

Adjusted for brand divestment income in India, on a re-based comparator, the underlying overall growth was higher at 17% on year-on-year basis. The underlying year-on-year growth is largely driven by the Generics business in the U.S. and emerging markets. The Q-o-Q decline is mostly on account of decline in revenues from Russia, the U.S. and India. The revenues for the financial year 2024 stood at INR27,916 crores, that is US$3.35 billion and grew by 14%. The growth was primarily driven by improvement in the base business volumes across several geographies. Consolidated gross profit margin stood at 58.6% for the quarter, an increase of 140 basis points over previous year and 7 basis points sequentially. The year-on-year increase was on account as improvement in product mix and productivity linked cost savings partially offset by brand divestment income during the previous period.

Those margins for Global Generics and PSAI were 52% and 28.6% respectively. Consolidated gross margin for FY2024 stood at 58.6%, an increase of 193 basis points over FY2023. Gross margin for the Global Generics and PSAI business were 62.9% and 23.2% respectively for full fiscal FY2024. The SG&A expense for the quarter is INR2,048 crores, which is US$246 million, an increase of 14% year-on-year and 1% quarter-on-quarter. The year-on-year increase is primarily on account of investment in sales and marketing activities and new business initiatives. The SG&A cost as a percentage to sales were 28.9% and is higher by 34 basis points year-on-year and 87 basis points quarter-on-quarter. The SG&A spend for the year is INR7,720 crores that is US$926 million and has grown by 13% largely in line with the business growth.

The SG&A cost as a percentage to sales was 27.7%, which is in line with the previous year. While we continue to invest in strengthening our existing brands in digitalization initiatives, expanding into new businesses to create future growth platforms and developing our talent, we are focused on operational excellence and productivity improvement across all aspects of our operations. We continue to invest in R&D to support future business growth. The R&D expense for the quarter is INR688 crores, which is US$83 million, an increase of 28% year-on-year and 24% quarter-on-quarter. The R&D spend is at 9.7% of sales and is higher by 119 basis points year-on-year and 200 basis points quarter-on-quarter. The R&D spent for FY2024 is INR2,287 crores, that is US$274 million and has grown by 18%.

R&D percentage to sales for the year stood at 8.2%, as against 7.9% during the last fiscal. The increase is primarily on account of higher number of filings and our developmental efforts to building a healthy pipeline of complex products across our market for both small molecules and biosimilars. The other operating income for the quarter is INR66 crores as compared to increase 28 crores for the same quarter last year. The other operating income for the fiscal is INR420 crores as compared to INR591 crores last year. The other operating income was lower on account of one-time settlement income reported in the previous year. The EBITDA for the quarter is INR1,872 crores that is US$225 million, a growth of 15% year-on-year and a decline of 11% quarter-on-quarter.

The EBITDA margin stood at 26.4% and is higher by 53 basis points year-on-year [indiscernible] by 283 basis points quarter-on-quarter. The EBITDA for the year is INR8,301 crores, that is US$996 million regarding the growth of 14%. EBITDA margin for the year is at 29.7%, which is largely in line with the previous year. The net finance income for the quarter is INR102 crores as compared to INR80 crores for the same quarter last year. The net finance income for FY2024 stood as INR399 crores as compared to INR285 crores last year. Profit before tax for the quarter stood at INR1,602 crores that is US$192 million, a growth of 21% year-on-year and a decline of 12% over the previous quarter. Profit before tax for the year stood as INR7,187 crores, that is US$862 million, recording a year-on-year growth of 19%.

Effective tax rate for the quarter has been lower at 18.4% and therefore the year has been at 22.5%. The ETR during the quarter is lower due to a one-time benefit occurring on account of reversal of a tax provision, re-measurement of deferred tax assets owing to an increase in U.S. state tax liability and adoption of corporate tax rate under section 115BAA of the Income Tax Act. The ETR was lower for full fiscal FY2024 mainly due to adoption of corporate tax rate under section 115BAA of the Income Tax Act of India. We expect our normal ETR to be in the range of 24%, 25%. Profit after tax for the quarter stood at INR1,307 crores, which is US$157 million, posting a growth of 36% year-on-year and a decline of 5% over previous quarter. Profit after tax for the year stood at INR5,569 crores, that is US$668 million a year-on-year growth of 24%.

Reported EPS for the quarter is INR78.4 and that for the year is INR334. Operating working capital as of 31 March, 2024 was INR11,293 crores, which is US$1,355 million, an increase INR42 crores, which is US$58 million over December 31, 2023. The increase is mainly driven by higher inventory and receivables. Our capital investments in this quarter stood at INR503 crores, which is US$60 million and INR1,518 crores, which is US$192 million during the year. The free cash flow generated during this quarter was INR529 crores, which is US$63 million. The free cash flow generated during this year before acquisition-related payout was at INR2,672 crores, which is US$321 million. Consequently, we now have a net surplus cash of INR6,459 crores, that is US$775 million as on March 31st 2024.

Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are US$903 million has around a rate of 83.6 and 84.20 to the dollar maturing over the next 12 months with knocking available, which allows participation when USD strengthened. And for the ruble, our 2,550 million at the rate of INR0.882 to the Ruble maturing in the next three months. With this, I now request Erez to take us through the key business highlights.

Erez Israeli: Thank you, Parag. Very good morning or good evening to everyone on the line. FY2024 has been a year of progress across our businesses. We focus on our strengths while also identifying and maximizing opportunities to diversify and differentiated our business. Leveraging new technologies and driving efficiencies, Dr. Reddy’s deliver a strong full-year performance with the highest level revenue and EBITDA. Let me take you through some of the key highlights of the year as well as most recent quarter. One, we have double-digit revenue growth in Q4 at 12%, and for the full-year, it’s 14%. Our reported EBITDA margin stood at 26% plus for the quarter, whereas we ended the full-year at the robust 30% plus. We delivered higher returns with our annualizing ROCE at 35.5%.

Net cash surplus was $775 million, as we exited the year. We have consistently maintained the strategic collaboration and we play an important role in our growth story. Apart from growing our core business of Generics, we invested in businesses of the future under the three spaces of consumer health, digital therapeutics, and access to novel molecules. Recently, we have joined hands with the Global FMCG giant Nestle to form a joint venture company to bring nutraceutical to consumers in India. The JV will leverage the trust and global brands of Nestle healthcare science and the well established commercial capabilities of Dr. Reddy’s in India. In Q4, we entered into an exclusive partnership with Sanofi to market and distribute its vaccine brands in India.

This has taken us to the second position among vaccine players. Our partnership with Bayer in India for the second brands of the molecules, Vericiguat brings this new class of drugs in heart failure management to patients in India. In and beyond metros, in Tier 1 and Tier 2 towns and threatens a [indiscernible] in the chronic segment. Our partnership with Pharmazz enable us to market Centhaquine in India, which demonstrate significantly better and promising outcomes in the management of a hypovolemic shock. Our long running strategic collaboration with Amgen was recently strengthened with an agreement to bring to India romosozumab injection under the brand EVENITY, which is used to treat osteoporosis in women after menopause who are at high risk of fracture.

As part of our self-care and wellness business in the United States, we acquired MenoLabs, a portfolio of women dietary supplement brands from Amyris Inc. We entered the UK consumer health market with the launch of allergy medication Histallay. We launched bevacizumab, our first biosimilar in the UK. In the digital therapeutic space after successful launch in India, the drug-free migraine management device Nerivio has now been extended to Europe, starting with Germany and also to South Africa. Further, we have launched condition management program in India called DailyBloom IBS, India’s first ever digital integrated care plan to manage irritable bowel syndrome. In 2023, we had undertaking a pilot launch of direct-to-consumer e-commerce websites, Celevida Wellness for diabetes nutrition.

We have decided to wind down the pilot to repurpose our resources to other initiatives. On the regulatory front, the U.S. FDA has provided VAI status of two of our facilities in Bachupally, Hyderabad. Our formulation manufacturing facility at FTO-3 following the routine cGMP inspection in October, 2023, as well as our R&D facility following the GMP and Pre-Approval Inspection in December, 2023. The U.S. FDA has issued a Complete Response letter to our Biologics License Application. This has no impact on the development or manufacturing of any current product pipeline. We will continue to work closely with the U.S. FDA to address and resolve all concern within stipulated timelines. We have delivered consistent industry leading performance across ESG ratings.

We have been included in the S&P Global Sustainability Yearbook 2024 for the fourth consecutive year, making it to the top 10% score category for the first time. We received an ‘A’ rating in CDP Supplier Engagement, which is in the Leadership Band. Also we are the Only Indian Pharma company to get an ‘A-’ rating in Climate Change and Water Security for our 2023 CDP disclosures. To all these efforts, including the learnings from the challenges, we remain committed to meet the unmet needs of patients and to enhance the standard of care. We continue to be a partner of choice. Given our commercial strengths and footprint, our strong governance, ESG and progressive people practices and of course, our financial discipline. Now let me take you through the key business highlights for the quarter and the full-year.

Please note that all references to the numbers in this section are in respective local currencies. Our North America Generics business recorded revenue of $392 million for the quarter with a growth of 26% year-over-year and a sequential decrease of 3%. On a full-year basis, we recorded revenues of [$1,506 – 608 billion] with a growth of 24% over the previous year. The increase was largely on account of market share expenses in certain key products, integration of the acquired bank portfolio and ForEx gains. This partially offset by price erosion. We launched five new products during the quarter and a total of 21 products this fiscal. We expect that those momentum to continue in FY2025. Our European Generics business recorded revenues of 58 million this quarter, with year-on-year growth of 3% and a sequential growth of 4%.

On a full-year basis, the revenues were $228 million, recording growth of 9%. The improvement in the business volume and contribution from new product launch [indiscernible] help offset price erosion. During the quarter, we launched a total of six products across markets, taking the aggregate launch in Europe for the fiscal 2022. Our emerging market generic business recorded revenues of INR1,209 crores in Q4, year-over-year growth of 9% and a sequential decline of 6%. On a full-year basis, emerging markets revenue were INR4,864 crores, a growth of 7% on a year-on-year business market share expansion and revenue from new products more than offset the unfavorable [indiscernible]. We launched 70 new products during the quarter across various countries of the emerging markets, total of 106 products in FY2024.

Within the segment, the Russia business grew by 9% on a year-to-year basis, but declined 13% sequentially in constant currency. Similarly, on a full-year basis, Russia grew 16%. Excluding the income from [indiscernible] divested last year, India business recorded a double-digit year-on-year growth of 11% in Q4, a sequential decline of 5% and 5.5% growth for the fiscal. As per [indiscernible], our IPM rank was 10 for the quarter and 11 for FY2024. Including the divestment income, our India business recorded revenue of INR1,127 crores in Q4 with a year – decline of 12%. On a full-year basis, revenue were INR4,641 crores, a decline of 5% over the previous year. Our focused brand approach capital of sales rep productivity improvement has led to steady improvement in our performance during the quarter, three new brands were launched in this quarter, taking the total number of brands launched to 13 this year.

Our PCI business recorded revenues of $99 million in Q4 of FY2024, with a year-over-year growth of 4% and sequential growth of 5%. On a full-year basis, the revenues were $359 million with a marginal decline of 1% over the previous year. We filed 48 Drug Master Files this quarter, taking the annual total to 133. We continue to focus on research and development to create robust portfolio product pipeline that will drive future growth. Our R&D investment this quarter stood at INR688 crores, up 28% year-over-year, driven by our biosimilar product pipeline as well as the development efforts across generics and our novel oncology assets in Origin. Further, we will complement our in-house efforts with partnerships and collaboration to develop innovative solutions.

We have done 21 global generic filings, including 9 ANDAs, 1 NDA in the U.S. during Q4 FY2024. Total number of global filings [indiscernible] with 7 ANDAs and 2 NDAs in the U.S. Our capital allocation priorities remain unchanged, with our number one priority being to reinvest in our business, both in the pipeline as well as building businesses of the future. Our strong balance sheet provides financial flexibility, and we remain committed to pursuing value-enhancing business development transactions to augment our organic growth efforts. As we exit the fiscal year on a positive note with the robust financial performance and strategic move protect us a step closer towards medium to long-term growth. I look forward to sustain growth momentum in the base business and a seamless integration of acquired assets in the next fiscal.

With this, I would like to open the floor to questions and answers.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria: Yes. Thanks for my question. My question is on the Nestle JV that we announced last month. If you could give us some color on when we should start looking at probably roll out of these brands? And how should we think about ramp-up of the entire JV revenue flowing through? Will it take a couple of years before it starts contributing to margins? Or would there be some incremental investments required? And just a follow-on on that. Will this be – will the JV contribution be over and above the double-digit growth in India that we have talked about in the past? Is that the way we should think about it?

Erez Israeli: So yes, it’s going to be above that. At the same time, it will take time to bring the brands that are currently outside of India to register them, to adjust them to the India regulatory needs or the taste of the people and obviously to build the brands in India. So the way the JV will work is both parties are doing the current nutraceuticals to the JV. And then a certain sequence to bring the brands primarily of Nestle Health Science to India, register, qualifying them, building them likely that in the first three years, it will be some level of investment. It’s not going to be a material investment in terms of total efforts, but the revenues will come only in the years after that.

Neha Manpuria: Essentially, I should assume that this starts contributing to the India business probably post FY2026?

Erez Israeli: It will be post FY2026, slightly even post FY2027. So the first couple of years will be years in which we will bring those products and build the brands at a certain sequence. So normally, people will see the growth, but this has a potential to be a meaningful business, but it will take time to build it.

Neha Manpuria: Got it. And my second question is on the R&D spend. We have a pretty high R&D spend this quarter. You talked about it in your opening remarks. When can we start seeing the complex product pipeline that you are talking about or the biosimilars contribute to earnings, particularly in the U.S. market? Should we start seeing – and for some of the areas that you could talk about and the guidance for next year for R&D, please.

Erez Israeli: Yes. So in terms of contribution to the growth, the small molecules, we will see that already in FY2025, some of them, more of them in FY2026 and some of them in FY2027, 2028. So this is the pipeline that we have discussed in the past. In terms of the biosimilars, what will come from internal activities likely that in FY2027, we will start to see the products coming. The level of R&D for next year will be around 8.5% to 9%. This is the range that likely we are going to have.

Neha Manpuria: Thank you so much.

Operator: Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.

Kunal Dhamesha: Yes. Good evening. Thank you for the opportunity. The first one on the U.S. business, just a clarity. You have said that there was a big erosion on a quarter-on-quarter business – quarter-on-quarter basis. So would the base include generic REVLIMID contribution as well when you say base erosion?

Erez Israeli: You are speaking about North America, Kunal? I did not catch the question. This is about America?

Kunal Dhamesha: Yes, yes. North America, we have said that the quarter-on-quarter decline is due to erosion in base business. So my question is, would this base business terminology include revenue from generic revenue?

Erez Israeli: Yes. So the quarter obviously includes the sales of Lenalidomide. The decline is a combination of sequence of service. So it’s not a market share loss. It’s more of a sequence of supply as well as certain price erosion that was on the base business unrelated to Lenalidomide.

Kunal Dhamesha: Sure. And in terms of the U.S. price erosion, while it continues, have you seen any change in the recent trend, whereas it is again accelerating at a higher pace in recent months?

Erez Israeli: So the overall sentiment is unchanged. Still the lion’s share of the – I think of the interest is sustainability of service and supply, and this is still the case. At the same time, we did face competition in some of our big products. And those products, we did see price erosion, in which, to some extent, was compensated by growth of other products. So on those specific products, we did see price erosion.

Kunal Dhamesha: Sure. And for the next year, how many product launches we have planned for the U.S. market?

Erez Israeli: So about 20 plus.

Kunal Dhamesha: 20 plus. Perfect. Thank you. And all the best.

Operator: Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee: Yes. Thanks for taking the question. Just one question on R&D. We have seen a significant step up and as you mentioned your guidance, it looks like you’re talking about more than $300 million of R&D spend next year. If you can provide like where this money is being spent in terms of biosimilars or NCE research and other generic activities?

Erez Israeli: So the R&D spend, obviously, on the small molecules as well as the big molecules. I think the main contribution to the growth is the timing of the clinical trial of the biosimilars, which is about 20% of the R&D spend. So if you wish, between the small molecules and the big molecules, so you have about 60% that goes to the small molecules, about 20% that is going to the biosimilars. And the 20% that goes to either API or other initiatives like licensing in and activities like that.

Saion Mukherjee: Okay. Thanks. And my second question would be, how do you see the growth in emerging markets in the years ahead, particularly with respect to China and some of the key markets like Brazil, if you can talk about your outlook for 2025 and 2026?

Erez Israeli: So it will continue to grow. It will continue to grow in double digits. China looks good. We are now consistently submitting 14, 15 products a year. So this is likely to continue. And also, we got some interesting approvals. So overall in constant currency, I believe that we are in a good shape. Obviously, there is a risk of ForEx. This remained the same. We have certain level of protection, but obviously, if it will come, it may offset it. But overall, it looks good.

Saion Mukherjee: Okay. Thank you.

Operator: Thank you. The next question is from the line of Balaji Prasad from Barclays. Please go ahead.

Unidentified Analyst: Hi everyone. This is [indiscernible] on for Balaji. Thanks for taking our questions. Can you hear me?

Erez Israeli: Yes, please.

Unidentified Analyst: Okay. Great. So we see you launched four new products in the U.S. during the quarter. Could you just provide a little bit more detail on these launches? And my second question is if you could provide a bit more detail on the CRL issue to the BLA for biosimilar rituximab. What are the next steps here? And what did this entail? Thank you so much.

Erez Israeli: Yes. So on the launches this quarter, as I mentioned, we launched five products during the quarter. We kind of mentioned the names along the way. We’ll try to provide it to you in a second. As for the CRL, we got certain questions primarily about the CMC of the product. And we are planning to address that around the September timeframe. And to – and then, obviously, I’m assuming it’s a six months goal right after that.

Operator: Thank you. The next question is from the line of Tarang from Old Bridge. Please go ahead.

Tarang Agrawal: Hi. Congrats for extremely strong set of numbers by FY2024. Just a couple of questions. Capital expenditure stepped up quite a lot in over FY2023, FY2024. If I look at 2024 alone, roughly INR 2,700 crores of CapEx. So if you could just give us a sense in terms of a broad set of baskets where this INR 2,500 crores would have been deployed. So that’s number one. Second, till date, it’s between P&L and balance sheet, if you could give us a sense on what your cumulative investments in biosimilars has been? And third, just a general sense on where your overall biosimilar business is at?

Erez Israeli: So about CapEx. First of all, most of our CapEx is going towards expansion, let’s say, give or take around 75% of this is going to expansions. And normally, the other is going what we call maintenance. The maintenance is also whether you need to replace certain staff or related to compliance or investment in the digital, et cetera. Also, in the future, in terms of distribution of the CapEx also for – next year, we are investing primarily the CapEx in products that we want to launch and with that capacity, both in the API as well as in our injectable facilities. So more than 50% of the CapEx is going in that direction. In addition to that, we are building additional capacity in our biologics plant in Bachupally as well as in our APSL of services on both biologics and small molecules. So by and large, this is where the CapEx is going. Is it sufficient – I don’t remember the rest of the question.

Tarang Agrawal: Yes. This is all right. So when you say expansion, these are broad buckets. I mean, it’s going into API injectables, biologics and origin, right?

Erez Israeli: Correct.

Tarang Agrawal: Okay. If you could give us an update on your biosimilar business from here on? And what are your cumulative spend on this business till March 2024?

Erez Israeli: So the – in terms of our biosimilar, just to remind us all, we decided to focus on products that we have a chance to be first to market. And when we initiated that strategy, we cannot bypass the products that we – that has a chance – that we had the chance to be late to market. So our first meaningful products will come in 2027. And after that, more products will follow. Right now, we are not discussing specific names, but that’s the overall plan. What you can assume, and I mentioned it before, that if 20% is going to the R&D, this is give or take also at the level of flows that we have in the year because right now, we don’t have a meaningful sales to cover for it. And this is something that likely to be breakeven and beyond, be profitable once we will launch in FY2027, our first biosimilar in Europe and United States.

Tarang Agrawal: So therefore, would it be safe to presume an investment of anywhere between $50 million to $60 million per annum on biosimilars. Would that be a reasonable estimate from here on?

Erez Israeli: Yes, in the ballpark.

Tarang Agrawal: Okay. Thank you.

Operator: Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane: Thanks for the opportunity. Sir, just on rituximab as far as Europe is concerned, where you can [indiscernible].

Operator: Tushar, the line for you seems to be a bad connection. I can’t hear you.

Erez Israeli: Can you repeat the question, please?

Operator: You were not audible, Tushar.

Tushar Manudhane: Is it better?

Operator: No, you seem to have a bad connection. I request you to please reestablish your connection and then get back in the queue. Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead. Nimish, the line for you has been unmuted. You may proceed with your question.

Erez Israeli: Maybe you can move to the next one, yes.

Operator: Yes. We will move to the next question, which is from the line of Nitesh Dutt from Burman Capital. Please go ahead.

Nitesh Dutt: Sir. Thanks for your opportunity. I have a question on our manufacturing strategy for the India business. So I just want to understand, number one, what percentage of your manufacturing in India is being done in-house versus outsourced? And are you expecting to maintain a similar mix going forward? And second, for the outsourcing part, how many suppliers do we typically have. Is it like a fragmented supplier base or consolidated amongst a few companies?

Erez Israeli: Yes. So when you say supply you mean global or for India?

Nitesh Dutt: For India.

Erez Israeli: So right now, about 60% of what we do is [indiscernible] give or take. And likely that these numbers will increase in the future because we did – we do have localizations of some of these products in the future. As for numbers of partners, I don’t recall the exact number, but I’m assuming that it’s double digits likely. But I don’t have the exact number on top of my head.

Nitesh Dutt: All right. And sir, a follow-up on that. The government has been placing a lot of emphasis on stricter implementation of schedules and norms and quality standard side? So how can it impact our procurement strategy on the outsourcing front? So can it lead to some sort of consolidation of supplier base or maybe an increase in the procurement cost, et cetera? Because if the quality cost increase for our suppliers then cost – our COGS might increase as well.

Erez Israeli: So I can tell you that [indiscernible], we have one standard of quality. We believe that all people deserve the same quality, no matter what is their nationality and that’s the policy of Dr. Reddy’s. We encourage everybody to do the same. So for us, any guidance in that direction, we see that as an opportunity. And if there are people that need to upgrade their system, it’s good, it’s good for India.

Nitesh Dutt: All right. Thanks. I will get back in the queue.

Operator: Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane: Audible now.

Operator: Yes. Please go ahead, sir.

Tushar Manudhane: [Indiscernible]

Operator: Sorry to interrupt. But the line is bad again for you. May I request you to please move the area with better network?

Tushar Manudhane: Is this better?

Erez Israeli: Yes.

Tushar Manudhane: Okay. Sir, on rituximab to understand the [indiscernible] be concerned?

Erez Israeli: So rituxumab, we launched in the – yes, so rituximab, we are planning to launch in the U.K. As we speak, we did not do it yet. So we are – we believe that we should get the approval soon. We are after the qualifications in the U.K. and we are waiting for the inspection of the EMA as well.

Tushar Manudhane: Understood. Sir, secondly, on the inventory, I see quarter-on-quarter reasonable increase. If you could explain that?

Erez Israeli: Again, sorry? Again, can you repeat?

Tushar Manudhane: There has been a reasonable increase in the inventory on a quarter-on-quarter basis.

Erez Israeli: You’re talking about the whole inventory?

Tushar Manudhane: Inventory?

Parag Agarwal: Yes, it yes, let me take that question. The increase in inventory is primarily because of some of the geopolitical risks, which are there, which are having some impact on the roots of supply. So we proactively build inventory to make sure that there’s no loss of sales. That’s the primary reason for the increase.

Tushar Manudhane: Understood. And lastly, sir, with SG&A expense also, we’ve seen increase over the past three to four quarters. So is this a run rate to consider for FY2025? Or will there be further increase in this?

Parag Agarwal: The overall, if you look at the SG&A expenses this year for the full-year as a percentage to sales, it’s about 27.7%, which is same as last year. Now quarter-on-quarter, you will find fluctuations happening. Broadly, we are investing behind our brands and sales and marketing, behind our capabilities, while also driving productivity. Broadly, I would say that SG&A over the next 12 months or so as a percentage to sales would remain in the similar range.

Tushar Manudhane: Got it. Thanks. Thanks for the opportunity.

Operator: Thank you. The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.

Ankush Mahajan: Thanks for the opportunity. Sir if we see that we have a U.S. sales of $390 million. On a sequential basis, it has decreased. Just trying to understand, sir, this decrease in the base business or in the gRevlimid business?

Erez Israeli: The decline is a combination of the sequential decline is part of it is normal pattern of ordering of the product. So and part of it is some price erosion that we got on a few products. It’s a combination of both.

Ankush Mahajan: Sir, what is the guidance of margins – full year guidance of EBITDA margins for FY2025?

Erez Israeli: So as you know, we are not giving guidance. In general, we are repeating that the normal long-term place that we want to be. So the 25% EBITDA with 25% ROCE, double-digit growth, it’s something that we are consistently saying that this is the range that we want to be. Sometimes we’ll be above it, sometimes will be below that, but we feel very comfortable that this is a place in which we can both invest for the future, and it allows us a significant room for improvement – for investment in the future as well as bring very, very healthy return to the shareholders. This year, we are, by and large, higher than that. And – but there will be timing that it will be – it can be even lower than that. But this is the where we feel comfortable to be. So we are not giving a kind of overall guidance, but we’re not giving guidance for a specific quarter or specific.

Ankush Mahajan: So sir, when we say 25% EBITDA margins, that includes gRevlimid also?

Erez Israeli: Like I mentioned before, this is our overall guidance, not for specific products. As you can see, when we launched the product, our margins were higher, so you can do the math.

Ankush Mahajan: Thank you, sir. Thanks you very much.

Operator: Thank you. [Operator Instructions] The next question is from the line of Surya Patra from Phillip Capital. Please go ahead.

Surya Patra: Yes. Thanks for this opportunity, sir. My first question is on the pricing trend that you’ll be seeing for Revlimid. And how sustainable the pricing trend currently that we are having for that because there are multiple grounds of [indiscernible] entry that we have seen. So whether that has impacted the realization put in sale of the product in the recent period.

Erez Israeli: So I’m not going to discuss quantities or prices of this product, as you know, so, sorry?

Surya Patra: Yes. On the pricing front, I’m not asking about this…

Erez Israeli: I just said I’m not going to discuss pricing or quantities of this product. We need to remain confidential to our agreements. And what we can say is that it’s going to stay meaningful products for us throughout the period of the agreement.

Surya Patra: Okay. Then my first question then would be on the domestic formulation business. So obviously, as for your indication that we have taken multiple initiatives to either introduce branded products or to expand qualitative products and the long-term sustaining kind of sustainable growth driving kind of products for the domestic formulation business, but in the initial period, possibly may not contribute much. So if you can give some sense let’s say, over a period of three years from now, what is the fair of revenue mix that you should be seeing for your domestic formulation business?

Erez Israeli: So you can see that we have a flow of agreements that are coming. So what we say that the base business – maybe a step back, the branded generic business that we have in India will grow. This quarter, it grew double digits if you take out the diversions that we had in the same quarter last year and likely that this will continue. On top of it, we started to launch already products. For example, we launched Nerivio and we launched other products that will come, and this will be on top of it. So naturally, the expectation of India is to grow beyond the growth that is expected from the branded generics. Right now, it looks like a very healthy pipeline that is coming up on both the NCEs, the nutraceutical deals that I mentioned, et cetera.

The expectation of both businesses. If you ask about the long term is to be top five in India. If you want an assumption, it’s in the neighborhood of around INR 12,000 crores somewhere in FY2030. But this is obviously a neighborhood that we are striving to be. We believe that this is what top five give or take will be at that period of time.

Surya Patra: Okay. Is it fair to believe, sir, this domestic formulation business is going to be the growth leader for Dr Reddy’s over the next few years. Is that fair to believe?

Erez Israeli: Yes, absolutely. India is a very important market for us, and we want to grow and we want to grow the rank. And it’s a growth engine, but it’s also our main half for innovation on both the back end as well as the front end. And the main place in which we believe that we can bring value because most of the people that are collaborating with us are – have an interest in our brand in India as well as in our go-to-market capabilities.

Surya Patra: Okay. My second question is about biosimilars business in the initiatives and also in collaboration with the R&D you spend that we are likely to have. So whether you have talked about 9% kind of R&D spend guidance for the subsequent period.

Erez Israeli: I mentioned that 20% of R&D is going to biosimilars.

Surya Patra: Okay. And are you indicating in line with the quarterly trends R&D spend as a percentage to sales. This is the kind of sustainable run rate [indiscernible].

Erez Israeli: We believe that is sustainable for us to be in, what I said, 8.5% to 9%. And it could be some fluctuation depends on the timing of the Phase III of the products. But this is – we believe that is sustainable.

Surya Patra: Okay. And so extended question to that on this. So we know that having seen the kind of challenges that is there about biosimilar success in the U.S. business and the kind of upfront investment that you required for each molecule to develop a biosimilar. So what is the kind of a right to success that you do think for your biosimilar status?

Erez Israeli: So I mentioned the time lines before. We decided at the time to skip the products that will relate to market in order to be among the first one to launch the product, and we still hope to do that. The second one is that we are not developing only for the U.S. Obviously, the U.S. is a very important market for us, but we are developing globally. And it’s actually, for us, it’s about U.S., Europe, India and emerging markets. And each one of them on the molecule that we chose is, these are meaningful markets for us.

Surya Patra: Okay. Yes, sure, sir. Thank you.

Operator: [Operator Instructions] The next question is from the line of Madhav Marda from FIL. Please go ahead.

Madhav Marda: Hi. Good evening. Thank you much for your time. Given that India is a core sort of focus market for us over the longer term, just wanted to get your thoughts on any risk that you see from rise of organized pharmacy retailing in this country like it happens in most developed markets that we have seen over the past few years? And rise of generic, generic drugs in the country, which the government has also tried to push last year. Obviously, within shape up. So just your thoughts on some of these factors and how they could play out for the country? Thank you.

Parag Agarwal: So there have been several attempts to make this generic, generic business success. But given the enforcement gaps in quality and concerns about doctors about quality, we feel that the branded generics business will continue for a while. We don’t see any imminent danger of it being commoditized by generics?

Madhav Marda: So given that the organized pharmacies come in doing this solve for the quality angle?

Parag Agarwal: Organized pharmacies are still a small portion of the overall sales. If you look at the market share, it’s probably 12% to 15% range at the most.

Erez Israeli: So just to make sure, we do see, obviously, the certain portion of like, by the way, happened everywhere in the world will become generic generics. At the same time, the market is growing as well. We recognize that trends along back, and I discussed it in previous meetings. This is why our main efforts and our main effort is about actually true innovation, patent protected, et cetera. We believe that the brands, our brands decided to continue to focus on will stay for a while like I just said.

Madhav Marda: Thank you, sir.

Operator: Thank you. [Operator Instructions] The next question is from the line of Bino Pathiparampil from Elara Capital.

Bino Pathiparampil: Good evening. Just a question on a couple of products in the U.S. One, you had acquired the ANDA to generic Lumify from Slayback Pharma? What’s the status when do you expect an approval?

Erez Israeli: Sorry, can you repeat the product.

Bino Pathiparampil: Generic version of ANDA from generic version of Lumify which you acquired from Slayback Pharma?

Erez Israeli: Yes. So what is the question?

Bino Pathiparampil: What it the status. I believe it was already filed when you acquired it. When do you expect approval and launch?

Erez Israeli: So the best of my knowledge is approved product by now.

Bino Pathiparampil: Sorry, what is it?

Erez Israeli: It’s an approved product by now. You asked whether it will get approved, it’s approved.

Bino Pathiparampil: Okay. And any timelines for the launch?

Richa Periwal: We expect the launch to happen in this quarter only.

Bino Pathiparampil: This quarter, Okay. Second, I believe you are also working on the peptides. So any update on what – how do you see the liraglutide opportunity panning out over the next two, three years?

Erez Israeli: So yes, indeed, this is a very important segment for us. Long-term, we put a lot of efforts. We are still putting efforts on both the API as well as the finished goods globally. We are planning to do it in each one of the market. Specifically for the product, both Victoza and Saxenda, obviously, we have what we believe are the date for launch for each one of them, and we want to launch when we can.

Bino Pathiparampil: Is it like a couple of years away or four years away? What the rough idea of when you see the opportunity coming up?

Erez Israeli: Each one of these products, there is a date. I don’t – I cannot confirm a date.

Richa Periwal: At an appropriate time.

Erez Israeli: At this stage, we cannot. But whenever the market will be open, we are planning to be there.

Operator: Thank you. Ladies and gentlemen, that will be the last question for today. I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you, ma’am.

Richa Periwal: Thank you all for joining us for today’s evening call. In case of any further queries, please get in touch with the Investor Relations team. Thank you once again on behalf of Dr. Reddy’s Laboratories Limited. That concludes this conference. You may now disconnect your lines.

Operator: Thank you. On behalf of Dr. Reddy’s Laboratories Limited, that concludes this conference, ladies and gentlemen. We thank you all for joining us. You may now disconnect.